By Giulia Petroni
Here is a look at what happened in oil markets in the week of June 24-28 and what the focus will be in the days to come.
OVERVIEW: Oil prices are on track for a weekly gain, buoyed by signs of a tighter market in the coming months, rising geopolitical tensions in Eastern Europe and the Middle East, as well as hopes that the U.S. central bank will start cutting interest rates soon. Brent crude, the international oil benchmark, currently trades around $85 a barrel, while the U.S. oil gauge West Texas Intermediate is at around $82 a barrel.
MACRO: The latest personal-consumption expenditures price index, or PCE, showed inflation moderating in line with expectations, lifting hopes for rate cuts this year--a positive sign for oil as lower rates tend to strengthen demand for the commodity.
Meanwhile, U.S. jobless claims data showed the number of continuing applications for unemployment benefits hit the highest level in more than two years, pointing to an easing labor market, while revised GDP estimates indicated the U.S. economy expanded at a 1.4% annual pace from January through March, the slowest quarterly growth since spring 2022. Still, recent declines in U.S. consumer confidence are tempering optimism.
GEOPOLITICAL RISKS: Prices continue to be underpinned by concerns over supply disruptions amid persistent drone attacks against energy infrastructure in Russia and Ukraine and border clashes between Israel and Iran-backed militia group Hezbollah, which could escalate the conflict in the Middle East and draw in some of the largest oil producers in the region.
The market is also keeping a close eye on Iran's presidential election on Friday, as a more hard-line president could result in more direct confrontations with the U.S., Israel and Saudi Arabia, according to analysts.
SUPPLY AND DEMAND: Signs of a tightening market in the third quarter following the extension of OPEC+ supply curbs and summer travel demand are providing support to prices, at least for the short term. But uncertainties around the pace of demand in two of the world's top consumers, the U.S. and China, still linger among traders.
This week's U.S. inventory report from the Energy Information Administration was bearish for prices, as oil stocks grew by 3.6 million barrels to 460.7 million barrels in the week ended June 21, while gasoline inventories increased by 2.7 million barrels to 233.9 million barrels. According to market watchers, the rise in gasoline stocks was rather unusual for this time of the year and dampened expectations of a further increase in demand.
WHAT'S AHEAD: At a macro level, investors will be focusing on U.S. nonfarm payrolls next Friday after the Independence Day market holiday, while the next Federal Reserve meeting is scheduled for July 31.
Analysts say they also expect survey-based estimates for June OPEC's production. "Most countries have been very disciplined in recent months and have produced in line with the agreed targets. However, there were major deviations in the case of the United Arab Emirates and Iraq," Commerzbank research's Barbara Lambrecht said in a note to clients. "If Iraq has now significantly reduced its production in June, this would certainly be a positive surprise for market participants and would boost the oil price."
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
06-28-24 1021ET
